Juliet Risdon
As a property owner about to lease out your property for the first time, the road ahead may appear straightforward. But are there hidden costs waiting for you?
Experienced landlords know what to expect.
The cost of owning and leasing a property does not end with the purchase price, landlords have numerous costs to consider when renting a property and these can be broken down into three different areas;
Property Costs – Improvements and furnishing, negative cash-flow
Administration Costs – Legal Fees, Agency Fees
Maintenance Costs – Ongoing maintenance
Property Costs
The first decision to be made by a landlord is what type of rental property they are going to provide. Unfurnished, Furnished, Fully Furnished?
This very much depends on the property type, and who the target audience is of course.
Furnishing
Even when a property is ‘unfurnished’ it usually contains ‘white goods’ such as a fridge and washing machine.
Furnished means basic furniture such as a sofa, beds, tables and chairs, whilst fully furnished usually means cutlery, plates and cups etc.
The budget will depend on the size of the property and the choice of furnishing level.
Be warned that unfurnished apartments are less popular and take longer to rent, and money saved on furnishing is often a false economy if a unfurnished property sits empty for months.
Improvements
Landlords may want to invest some money improving a property. Painting walls, a new TV and new audio equipment are all popular ways of improving an apartment and making it an attractive rental proposition.
Cash Flow
This is often overlooked, but whilst a property is under renovation and without a tenant, the landlord is still paying a mortgage. With no income, this means a negative cash flow, which must be accounted for when considering the overall cost.
Once a property is rented, if the rent does not cover mortgage payments the cash flow shortfall must also be taken into account.
Administration Costs
Legal & Tax Costs
An often overlooked cost, landlords may have cause to consult lawyers on contractual issues, but they will certainly have to consider rental income tax.
The rental income tax is 10 percent of the rental revenue received, with a maximum allowance of 10 percent of the annual rent for maintenance costs.
Insurance
The contents of the property are the responsibility of the tenant, and tenants should take out insurance in case of fire or burglary.
However, landlords must purchase insurance to cover the cost of a re-build should something happen to the structure. This is often a bank requirement if the property has a loan.
Agency Fees
Agency fees vary from country to country. In Macau, the standard agency fee is equivalent to one month’s rent when renting an apartment.
Maintenance Costs
Ongoing maintenance
Once a tenant is renting your property, there will be some ongoing maintenance costs.
It is usual that most of these costs will occur during the first three months of occupancy. As the tenant moves in and uses the facilities, it soon becomes obvious if something is not working properly.
Periodic Maintenance
During the tenancy there will be some periodic maintenance required.
Landlords may be tempted into thinking that all costs should be paid by tenants, but in many cases this is a false economy.
For example, re-gassing air-cons every two years keeps them in good shape and means they will last a lot longer, and therefore do not need to be replaced.
* Figures expressed in MOP unless otherwise stated
Juliet Risdon is a Director of JML Property and a property investor.
Having been established in 1994, JML Property offers Investment Property & Homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.
www.JMLProperty.com
info@JMLProperty.com
No Comments